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Q: Limited Liablity Company ( Answered 4 out of 5 stars,   0 Comments )
Question  
Subject: Limited Liablity Company
Category: Business and Money > Small Businesses
Asked by: dayo7147-ga
List Price: $10.00
Posted: 10 Jul 2005 16:58 PDT
Expires: 09 Aug 2005 16:58 PDT
Question ID: 541944
Can an individual who is a US resident, but NOT a US citizen,
establish a Limited Liability Company in the United States?
Answer  
Subject: Re: Limited Liablity Company
Answered By: nenna-ga on 11 Jul 2005 09:55 PDT
Rated:4 out of 5 stars
 
Good morning dayo7147-ga and thank you for your question.

I have done a bit of researching concerning LLC's and their laws and
have come to the conclussion that there is no law or statutue that
states the person forming an LLC must be a citizen of the United
States.

I contacted Michael Jenkins, author of Starting and Operating a
Business in California (and other state editions) and this is what he
had to say:

"I'm not aware of LLC laws in any state that impose any citizenship or
residency requirement for establishing an LLC, and I don't think there
are any such requirements. It is possible that there is such a federal
(immigration) law requirement, but if so, I've never heard of it.
 
As I note in my book, Starting and Operating a Business in California
(and other state editions), nonresident foreigners (or foreign
organizations) are required to register their direct investments in
the U.S. with the Department of Commerce (15 C.F.R. Sec. 806), but
even that requirement does not apply to legal residents of the U.S.
(15 C.F.R. Sec. 806.7(e) -- definition of "foreign person")."



Additionally, John M. McCabe, Legal Counsel/Legislative Director of
the National Conference of Commissioners on Uniform State Laws,
states:

"I don?t know of any requirement that an organizer of a limited
liability company be either a U.S. resident or a U.S. citizen to file
articles of organization in any state.  The Uniform Limited Liability
Company Act certainly has no such requirement under Sections 201 and
203.  I have no definitive survey of state law, but I have never heard
this issue raised before.  A limited liability company organized under
the law of any state is a domestic entity in that state.  Who the
organizers are or where they reside is irrelevant to the question of
the situs of the company.   The situs of the company and the law that
governs it are the important  issues, and those issues are addressed
in the law of every state.

 
John M. McCabe
Legal Counsel/Legislative Director
NCCUSL
"
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A summary of the Uniform Limited Liability Act is as follows:


1. Formation

Under the Uniform Limited Liability Company Act promulgated by the
Uniform Law Commissioners in 1994, a limited liability company is
formed when the prescribed Articles of Organization are filed and
accepted in the appropriate state office, usually the Office of the
Secretary of State.

Three things should be noted about forming a limited liability company
under the Uniform Act. Unlike a partnership, but like a corporation,
one person can organize a limited liability company. It is possible to
organize a not-for-profit limited liability company under the Uniform
Act. There is no limitation to businesses for profit. The Uniform Act
also does not restrict the types of business or profession that may
organize limited liability companies. Thus, doctors and lawyers may
organize limited liability companies. Professionals, generally, have
not been able to form business corporations, and have historically
organized as partnerships.

The Articles of Organization must specify some characteristics of the
limited liability company. It must indicate whether the company is for
a term, and if for a term, exactly how long the term is to run.
Otherwise, the limited liability company will be considered an "at
will" company. The articles must also indicate whether the company
will be member managed or manager managed. These designations have
significant outcomes.

The notion of a specific term as opposed to "at will" existence is
derived from partnership law. These are characteristics of specific
kinds of partnerships. Which kind of company, "term" or "at will"
makes a big difference in the dissolution of the entity. To choose
from member management versus manager management is to choose between
partnership character and corporate character, with significant tax
implications. A member managed company lacks the characteristic of
centralized management, a corporate characteristic under federal tax
law, while a manager managed company has that characteristic.

The Articles of Organization establish the time of formation for a
limited liability company, but the operating agreement is the true
foundation of a limited liability company. It governs the relationship
between members, and members and managers in a manager managed
company. The Uniform Act is called a default act. Its rules of law
govern a company "To the extent the operating agreement does not
otherwise provide." However, the agreement may not seriously impair
the fiduciary responsibilities of its members, eliminate the
obligation of good faith and fair dealing, or vary rights relating to
expulsion of members, or the winding up of the company's business. The
agreement may not restrict the rights of third parties. But other than
these specific prohibitions, the operating agreement can govern
everything else. In this sense, a limited liability company resembles
a partnership under the Uniform Partnership Act (1994) and the Uniform
Limited Partnership Act (1976) with 1985 Amendments.

2. Doing Business

When a limited liability company is formed under the Uniform Act, it
either does business through its members or through the designated
managers, depending upon the kind of limited liability company that is
formed. A limited liability company is an entity, regarded as an
undivided whole. Business is done in the name of the company, not in
the name of members individually. Therefore, it is important to
establish the legitimate agents for the entity - doing business in the
name of the entity. In a member-managed company, every member is able
to do business in the name of the company and is able to bind the
company to obligations with third parties. In a manager-managed
company, the designated manager or managers are the agents for the
company (members may be designated managers). The agency power
includes the power to convey real estate, unless the Articles of
Organization expressly limit that power.

Since one function of a limited liability company is to aggregate
capital for the purpose of doing business, the Uniform Act has rules
governing contributions, generally the value the member gives to
become a member, and distributions, generally the value that the
member receives for making his or her contribution - the return on
investment. Contributions may be in kind, of services - just about
anything of value that the entity will accept in exchange for
membership. However, no member can be forced to take distributions in
kind.

An obligation to contribute is enforceable by the company, and even by
creditors of the company. No member is entitled to a distribution that
would bankrupt the company. The default rule entitles members to equal
distributions. These are enforceable rights, but creditors to the
company take priority over members in satisfaction of their
obligations (Members may be creditors). The rules pertaining to
agency, contributions, and distributions generally mimic the rules for
partnerships in the Uniform Partnership Act (1994) and the Uniform
Limited Partnership Act (1976) with the 1985 Amendments, emphasizing
the relationship between limited liability companies and partnerships,
once again. Agency in a manager managed limited liability company is
more like the agency of the hired officers and employees of a
corporation. It should be remembered, as well, that all these rules
are subject to variation by the operating agreement.

The Uniform Act also prescribes some rules of conduct for members of
limited liability companies. These are fundamental obligations and are
not waivable or subject to variation in the operating agreement.
Members enjoy a right of access to the books and records of the
company. A member owes a duty of loyalty to other members, consisting
of an obligation to account to and hold as a trustee for any property
or profit acquired in the business of the company, a duty to refrain
from dealing with or on behalf of a party with an adverse interest to
the company, and an obligation to refrain from competing with the
company before its dissolution.

A member's duty of care in a member managed company is to refrain from
grossly negligent conduct, reckless conduct, intentional misconduct,
or violation of the law. There is an obligation of good faith and fair
dealing. These same obligations belong to a manager in a manager
managed company. These obligations parallel those prescribed for a
partnership in the Uniform Partnership Act (1994).

Since a limited liability company is an entity under the Uniform
Limited Liability Company Act, its property is held in its own name,
not in the name of its members. The members have a statutory property
interest in the company that is a personal property interest.

Generally that interest may be transferred by a member to another
person. A bare transfer does not make the transferee a member. A
transferee becomes a member, if the operating agreement does not
otherwise provide, only upon consent of all other members. However,
the operating agreement for the company can provide for certificates
representing members' interests, and for transferring those interests
by transferring the certificates. The default transfer rules,
therefore, which are rules that mimic partnership rules under the
Uniform Partnership Act (1994), can be transformed by the operating
agreement into transfer rules consistent with the transfer of
corporate shares. Once again, the hybrid quality of the Uniform Act
becomes apparent.

A member's property interest is the only interest that can be reached
by that member's creditors, as well. There is a procedure for charging
a member's interest to satisfy a debt. The charging order becomes a
lien upon that interest, and the interest may be placed by the court
with a receiver to take distributions on behalf of the creditor. The
lien is foreclosable. These provisions for the property interest of a
member are very similar to the interest in a partnership under the
Uniform Partnership Act (1994).

3. Dissociation of Members and Dissolution

A member can transfer at least the fruits of his or her interest
without dissociating with the company. When a dissociation does occur,
however, unless the operating agreement specifies otherwise or a
majority in interest of the members vote to continue, dissociation can
mean dissolution of the company. Every at-will company will dissolve,
and every term company will dissolve if the dissociation is of a
certain category of involuntary dissociation. It is important to note
that the operating agreement may specify the events that constitute
dissolution, and there is provision for buying out a voluntarily
dissociating member's interest upon dissociation without precipitating
dissolution. Few limited liability companies are likely to rely upon
the bare default rules of the Uniform Act, precipitating unwanted
dissolutions.

Dissociations can be proper or wrongful. A wrongful dissociation is
still a dissociation, but the dissociating member will likely be
liable to the company for that dissociation.

When dissolution does occur, the company is put through the winding up
of the business. Generally, creditors are satisfied, contributions are
returned, and distributions made in this phase. A court can, upon a
show of good cause, take over the winding up of a limited liability
company. The rules for dissociation and dissolution with winding up
are taken largely from partnership law as expressed in the Uniform
Partnership Act (1994), and provide these essentially partnership
qualities to limited liability companies.

4. Conversion and Merger

A limited liability company, like any business organization, is
formed, does business, and then dissolves. The statute provides the
default rules governing each of these phases of the entity. There is
only one more kind of thing that can be provided. The Uniform Act
provides for the conversion of partnerships and limited partnerships
to limited liability companies, and the merger of limited liability
companies with virtually any other kind of business organization.
Partnerships and limited partnerships have the ability to convert
anyway, but only upon the consent of all partners. Under the
conversion provisions of the Uniform Act, the partnership agreement
can control the requirements for consent to convert. The same
arrangement is provided for merger of a limited liability company. Its
agreement can control the consent requirements.

5. Foreign Limited Liability Companies

The Uniform Act also provides for the registration of foreign limited
liability companies and for derivative actions by members on behalf of
a limited liability company. These are aspects of corporate law that
are shared with limited partnerships.

6. Derivative Actions

A member has the power to bring a derivative legal action on the part
of a limited liability company if the those with authority to bring
such an action do not take the action in the right of the company. The
member must have been a member when the transactions upon which the
action are based took place. A pleading must specify the nature of the
action with particularity, and proceeds are the company's not the
member's. A prevailing member can recover expenses and attorney's
fees, however. Derivative actions come both from limited partnership
and corporation law.


CONCLUSION

The result of the Uniform Act is a very flexible form of business
organization that allows the promoters of a limited liability company
to establish exactly the kind of company that suits the business at
hand. It very much allows organizing the company so that it is a pass
through organization for the purposes of federal taxes. A great many
states have adopted first generation limited liability company
legislation in 1994, the year the Uniform Act is promulgated, but the
Uniform Act is the comprehensive, second generation act that should
supplant these first generation acts. It also will promote uniformity
between the states, a characteristic of business organization law,
particularly in the partnership and limited partnership area. The
Uniform Law Commissioners have been responsible for the law of
partnerships and limited partnerships in the United States since 1914
and 1918, respectively. The resultant existing uniformity can now be
duplicated, to the advantage of all the states, by the adoption of the
Uniform Limited Liability Company Act.

Source:  Uniform Law Commissioners
( http://www.nccusl.org/nccusl/uniformact_summaries/uniformacts-s-ullca.asp )


As referenced above:

SECTION 201. LIMITED LIABILITY COMPANY AS LEGAL ENTITY. A limited
liability company is a legal entity distinct from its members.

Comment:  A limited liability company is legally distinct from its
members who are not normally liable for the debts, obligations, and
liabilities of the company. See Section 303. Accordingly, members are
not proper parties to suits against the company unless an object of
the proceeding is to enforce members' rights against the company or to
enforce their liability to the company.

SECTION 203. ARTICLES OF ORGANIZATION.

    (a) Articles of organization of a limited liability company must set forth:

        (1) the name of the company;

        (2) the address of the initial designated office;

        (3) the name and street address of the initial agent for service of 
            process;

        (4) the name and address of each organizer;

        (5) whether the company is to be a term company and, if so, the term 
            specified;

        (6) whether the company is to be manager-managed, and, if so, the name 
            and address of each initial manager; and

        (7) whether one or more of the members of the company are to be liable 
            for its debts and obligations under Section 303(c).

              (b) Articles of organization of a limited liability company may 
                  set forth:

                     (1) provisions permitted to be set forth in an operating 
                         agreement; or

                     (2) other matters not inconsistent with law.

              (c) Articles of organization of a limited liability company may 
                  not vary the nonwaivable provisions of Section 103(b). As to 
                  all other matters, if any provision of an operating 
                  agreement is inconsistent with the articles of organization:

                     (1) the operating agreement controls as to managers, 
                         members, and members' transferees; and

                     (2) the articles of organization control as to persons, 
                         other than managers, members and their transferees, 
                         who reasonably rely on the articles to their 
                         detriment.


You can view the entire act at:

( http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ullca96.htm )


= = = = = = = = = =

Additional information:


"In the United States the name of "corporation" generally applies to a
business, run for profit, to which one of the states of the United
States (or other governmental body with that power, including Congress
and Puerto Rico) has granted a corporate charter. The federal
government of the United States usually does not grant corporate
charters to businesses (exceptions include public corporations such as
the United States Postal Service and Amtrak.)American corporations
typically charter as a Delaware Corporation in Delaware, which charges
no tax on activities outside the state and has courts experienced in
commercial law. Corporations set up for privacy or asset protection
often charter in Nevada, which allows setting them up with no record
of who owns them."


Source:  Wikipedia
( http://en.wikipedia.org/wiki/Corporation )

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If this answer requires further explanation, please request
clarification before rating it, and I'll be happy to look into this
further.

Nenna-GA
Google Answers Researcher

Google Search Terms:

Federal Limited Liability Company Laws
( ://www.google.com/search?q=federal+Limited+liability+company+laws+&hl=en&l=&c2coff=1&start=10&sa=N
)

Uniform Limited Liability Act
( ://www.google.com/search?hl=en&lr=&c2coff=1&q=Uniform+Limited+Liability+Act )
dayo7147-ga rated this answer:4 out of 5 stars

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